Wally Adeyemo at CNBC’s Delivering Alpha on September 28, 2022.
Scott Mlyn | CNBC
WASHINGTON — The record number of emergency loans extended to banks this week by the Federal Reserve have been key to stabilizing withdrawals from small and medium-sized U.S. banks, Assistant Treasury Secretary Wally Adeyemo told CNBC on Friday.
The impact of swift actions by federal regulators last weekend to stabilize the US banking system helped contain the fallout, but was still reverberating through the economy nearly a week later.
Markets still haven’t fully priced the federal aid or the $30 billion that 11 banks have deposited in Bank of the First Republic to help build trust in the system, he said.
“It will take time for the markets to catch up with the actions that have been taken by us and by these banks,” Adeyemo said on CNBC’s “Squawk on the Street.” “And what we have done now is give these institutions time to think about how they will organize their activities in the future.”
Following the collapse of California-based Silicon Valley Bank and New York-based Signature Bank on Friday and Sunday respectively, regulators announced a series of emergency measures to stabilize the banking system from the country.
They included guaranteeing the deposits of customers of the two bankrupt banks; the creation of a new fund, the Bank Term Funding Program, to provide short-term loans to banks on generous terms; and easing the terms of the Fed’s traditional overnight bank lending arm, the so-called “discount window.”
The result of these actions was a dramatic turnaround in the fortunes of many banks, Adeyemo said. This included banks that had anticipated potential large withdrawals and promised collateral in advance expecting to need emergency loans.
“While a number of banks entering the weekend pre-positioned the need for more liquidity, what we saw over the week was that they had to use less and less,” Adeyemo said. “And now that we have seen a stabilization in terms of deposits with these institutions.”
But as trends moved in the right direction, the amount of money borrowed by banks from last week through Wednesday at the Fed’s discount window set a new record at $153 billion, according to the Fed report. weekly report.
The previous record for discount window loans was $111 billion, set at the height of the financial crisis in 2008.
The identity of the banks that borrowed will not be made public for two years. But the sum suggests that the banking sector is not quite stable yet.
Ongoing questions about bank stability join another issue arising from the Fed’s actions. If uninsured deposits at banks that fail in the future will be covered the same as they were at SVB and Signature.
“Are all uninsured depositors in the US banking system protected right now?” CNBC’s Sara Eisen asked Adeyemo.
The answer was that, for now, it is a goal of the Biden administration, but not a reality.
“At the end of the day, the president has made it clear that our goal is to protect depositors to ensure they have the money they need to run their businesses and ensure their families are taken care of.” , Adeyemo said.